top of page

Former TWDBers spill the beans on Prop 6


Nix Prop 6 Coalition Gets Big Boost from Former Texas Water Development Board Appointees and Senior Staff

*  Former TWDBers tell Nix 6ers:  Prop 6 is a Trojan Horse for influence peddling, not water or drought.

*  Former TWDBers tell Nix 6ers:  Governor-appointed TWDB to pick winners and losers; special interests and political cronies win, taxpayers and ratepayers will pay the price.

*  Former TWDBers tell Nix 6ers:  Prop 6’s $2B down payment on State’s $27B-$30B share of $53B capital cost ($213B actual cost) of state water plan’s 500+ projects, indicates how much money is at stake and how much influence will be peddled.

*  Former TWDBers tell Nix 6ers:  Governor’s team and Legislature push Prop 6 funding from Rainy Day Fund because taxpayers would never approve astronomical cost of state water plan if State’s $27B-$30B share paid with general revenues instead.

*  Former TWDBers tell Nix 6ers:  No assurance Prop 6’s $2B will pay State’s share of state water plan; they will be back for more money.

*  Nix 6ers say:  As long as cronies control TWDB, massive state water plan projects will be built with Prop 6 subsidies, whether or not the projects make sense, economically or in human cost.

*  Nix 6ers say: Worthy, properly vetted projects should be subsidized the old fashioned way to make them affordable for borrowers who can’t finance on their own – either directly with general revenues, or with TWDB loans, like Prop 2 promised, with subsidies from general revenues.

*  Nix 6ers say:  Conservation and rural agricultural, especially agricultural conservation, should be prioritized, the money appropriated to subsidize them (except for cities that can afford on their own) and done yesterday.

*  Nix 6ers say:  Mammoth boondoggles for urban centers, like reservoirs, that throw off millions of dollars to special interests should have to prove their need for subsidies, after they prove they are affordable, and after intensive conservation is instituted, not before. _________________________________________________________________________________

October 24, 2013

The opposition to Prop 6 has begun to achieve the media attention it deserves, but the Nix Prop 6 cross-partisan coalition has received a big boost in its efforts to expose Prop 6’s true purposes and shortcomings. Members of the coalition were able to speak with former (volunteer) Board members and senior staff of the Texas Water Development Board (TWDB). They were among those who abruptly lost their appointments or their jobs last August 31, as a direct result of House Bill 4 (HB 4), the enabling legislation for the Prop 6 constitutional amendment.

One such source described our concerns as “dead on accurate” that the genesis of Prop 6 was crony politics and special interest favoritism, not drought or water emergencies.  The cross-partisan coalition (from the more independent greens to tea partiers) has exposed the Prop 6-created State Water Implementation Fund for Texas (SWIFT as a thinly disguised political slush fund of public money for the benefit of special interests. Prop 6 and HB4 will encourage campaign contributions for legislators who play ball, but do not assure SWIFT’s viability as the solution to our water needs. And Prop 6 probably means more State debt, rather than less, as some Prop 6 supporters argue.

Under HB4, political cronies at TWDB will take over prioritizing and financing the construction of projects included in the state water plan. “Many of these projects have not been adequately vetted and are hugely expensive, in both economic and human terms, but Rick Perry’s cronies will pick the winners and losers,” said Linda Curtis of Independent Texans. Sen. Troy Fraser (R-Horseshoe Bay), Senate Natural Resources Committee Chair, with the backing of the Governor and Lt. Governor, rewrote the original House legislation, to wipe out TWDB’s management structure and replace it with three salaried bureaucrats, serving at the Governor’s pleasure.

Linda Curtis is volunteer Director of Independent Texans, the Texas PAC that brought the Nix Prop 6 coalition together. “The August 31 bloodletting at TWDB, with more cuts being made as we speak, is accompanied by the cultural change of a volunteer state board of 6 members with a $50K expense account to 3 paid appointees with a $1.9 million budget.  The giddiness of the ‘new and improved’ Perry TWDB, as they order new furniture and redecorate the place, has the look and feel of a slush fund. This was a pre-requisite for Prop 6’s changes in financing for a reason. This board of career bureaucrats will determine which projects are built, which investment bankers, lawyers, engineers, construction firms and consultants are hired to work on them. Even if Prop 6 fails, with the TWDB now fully in bed with Rick Perry, we have sounded the alarm that ordinary Texans must ready themselves for a protracted battle over our most precious resource – Texas water – just as we did on Perry’s road cash-cow, the Trans-Texas Corridor.”

HB 4, as originally introduced by Rep. Allan Ritter (R-Nederland), Chair of the House Natural Resources Committee, and many other sponsors, structured SWIFT as a revolving loan fund, limited to financing the projects included in the state water plan. It was designed to work in concert with other TWDB financing programs, including Prop 2 evergreen bonding authority voters gave TWDB in 2011. “Voters were sold on Prop 2’s $6B, unprecedented revolving “bond bank” in 2011 because they feared the effects of drought, including the threatened shortages in water supply that would result if we didn’t immediately start building water projects,” said Curtis.

To date, no bonds have been issued under Prop 2 and, to the knowledge of the coalition, no applications from borrowers are pending. It would seem that borrowers have shunned Prop 2 as the solution to our water crisis. And now Prop 6, the latest solution to our “water emergency”, will not be available to serve any water needs of thirsty Texas communities until March, 2015.

TWDB sources agree Prop 2 bonds could be issued, without the Prop 6 money, for any water project that qualifies. “Instead of getting started on potentially more sensible infrastructure projects two years ago, the massive reservoir and groundwater transfer projects in the state water plan will probably move to the head of the line now, as indicated by House Speaker Joe Straus in his op-ed in last Sunday’s San Antonio Express-News. The bottom line seems to be, borrowers are not opposed to bond financing, they are simply holding out for a better deal,” said Curtis.

Prop 2 was also sold to voters as a way to fund water projects with absolutely no cost to taxpayers – those who benefitted from a loan would have to pay it back, in sufficient amounts to pay the related State bonds. In actual fact, this was a half-truth. Prop 2 did in fact allow the issuance of bonds, so-called “non self-supporting bonds”, that probably would require some subsidies from the State, typically from general revenue. “However, the Legislature was boxed in by their Prop 2 campaign promises of ‘no taxpayer cost’,” said Curtis. “They had to find a way to avoid appropriations but also avoid asking borrowers to pay more of the costs for their projects. We believe there is no doubt that special interest donors demanded that the Legislature ante up another source of State subsidies, especially for hugely expensive projects.”

Massive projects like reservoirs, pipelines and groundwater transfers take a long time to be completed and to generate revenues from ratepayers, but, coincidentally, they make a lot of money for all the special interests that work for the  public entity borrowers, including their private for-profit partners, consultants, investment bankers, lawyers, engineers, construction firms and the list goes on. “The continuing drought only encouraged the chicanery,” said Curtis. The coalition’s sources revealed that, prior to the 2013 legislative session, TWDB staff proposed a revolving loan fund, for loans to borrowers that would help defray the costs of borrowing that would otherwise require State subsidies. “However, the initial funding assumption for the loan fund soon grew to an unprecedented $2B at the behest of the Legislature, which one of our sources described as a ‘jaw-dropping’ amount. The handwriting was on the wall that something new and different was afoot,” said Curtis.

Prop 6 supporters are now proclaiming SWIFT as the solution to Prop 2’s inability to provide “critical loan enhancements” for large, long-term projects. “Why should we trust them now to get it right?” said Curtis. “We see Prop 6 as the culmination of the Legislature’s need to satisfy the special interests with potentially “free money”, while depriving taxpayers of any say in who gets the money, or on what terms, for water boondoggles. That need existed in 2011, but they didn’t tell us,” said Curtis.

Under HB 4, the $2B of seed money is expected to grow through investment of SWIFT’s fund balances. TWDB applied financial modeling to the proposed SWIFT to determine its investment growth potential to pay the “State’s portion” of the estimated $53B capital cost of the water plan. However, the mid-session rewrite of HB 4 changed SWIFT from a revolving loan fund to a fund that provides “support or revenue” for other TWDB bond programs. “This is where it gets complicated, but a good rule of thumb is to follow the money,” said Curtis.

As one source commented, Prop 6 was not going to be “a hunk of actual cash” to be loaned out to borrowers, and repaid, despite some Prop 6 supporters who continue to say otherwise. “Instead, Texas will increase its debt by continuing to borrow money through State general obligation bonds issued in the public markets,,” said Michele Gangnes, a rural water activist and public finance attorney. “Bond proceeds will still be used to make low-interest, deferred-payment loans to borrowers. However, the State usually owes Wall Street payments on the bonds at a higher interest rate than the borrower loan rate, and on a faster repayment schedule than the loan. Prop 6 money (SWIFT) will be used to pay that interest rate differential and make up deferred loan payments to Wall Street, with no guarantee when, or if, SWIFT will be fully repaid (for example, interest rate subsidies are rarely recouped by TWDB on the borrower side). Bottom line, the State keeps both Wall Street and borrowers happy, without appropriating general revenues and free from pesky taxpayer oversight. The special interests cash in through lucrative service contracts for the projects, legislators receive their campaign contributions for making it happen, and the ratepayers have not yet received the bill for the true cost of the project.”

Whether SWIFT funds provide additional security for TWDB’s bond programs, or pay a portion of the debt service on the bonds, funds will be transferred out of SWIFT, and out of its investment portfolio, to accomplish the bond issues. TWDB sources confirmed the complicated structure of TWDB’s various financing programs would affect when, and if, both principal and interest, or even principal alone, would actually be returned to SWIFT or repaid by borrowers to SWIFT.

The sources also pointed out the potentially profound negative effects on SWIFT’s growth over time when the “revolving loan” feature is stripped out.  Coincidental with the rewrite of HB 4 and without explanation, the financial modeling of the new structure’s growth potential was suddenly removed from TWDB oversight and sent to Estrada-Hinojosa, an outside investment banking firm with an interest in lucrative underwriting contracts for TWDB bond issues.

“According to our sources, Estrada-Hinojosa’s models continued to show fund growth sufficient to satisfy the State’s portion of the capital cost of the state water plan, a minimum of $27B, even after HB 4 was restructured.  They recalled that TWDB’s models of the original legislation never exceeded $11B. Knowing how uncertain fund balances would be under the new structure, TWDB staff suspected that the Estrada-Hinojosa models had been reverse-engineered and were overly optimistic,” said Gangnes. Thus, the Trojan Horse had launched the myths that Prop 6 will pay the State’s full share of building the state water plan, and that at least principal disbursed from SWIFT, if not principal and interest, will always be repaid to SWIFT.

In fact, without careful management by virtually brand-new and unproven management at TWDB, the coalition’s sources fear SWIFT may actually do very little to pay the State’s share of the water plan. SWIFT could be depleted if the initial $2B is used too quickly, on too many expensive projects, and with slow return, or no return, of funds disbursed. The restructured fund could also be subjected to restrictions on its investment yield, under the effect of federal tax rules. “These issues could have been avoided. But for a too-clever manipulation of the structure of SWIFT in mid-session, the original straightforward model of a revolving loan fund would have grown more reliably, with a more predictable effect on water financing,” said Gangnes. “Instead, ‘business as usual,’ crony politics seems assured, while the positive effects of Prop 6 are uncertain and not worth a $2B gamble by taxpayers.”

“Whether or not they really understood the changes to HB4 is anyone’s guess, but the fact is, Prop 6 is supported by all but a handful of legislators. The Nix Prop 6 coalition fully expects them to eagerly ‘follow the money’ that will flow into their campaign coffers from special interests, as a reward for blind loyalty,” said Curtis.  Rep. Van Taylor (R-Plano), a Harvard MBA and tenacious challenger of Prop 6, was credited by one TWDB source as perhaps the only House member, other than Chairman Ritter, who was able to figure out what was going on with the restructured SWIFT.

Prior to the House vote on the final version of HB4, Taylor twice queried  Ritter about how SWIFT would operate. When asked whether “money would be lent from the fund with the expectation that the principal would be returned,” Ritter answered, “[T]hat’s correct. It is a revolving [sic] – back to the SWIFT. Yes, sir.” Rep. Taylor carefully rephrased and asked, “Okay, it’s a revolving fund. The intention is that the money goes out —the principal goes out —and the principal comes back?” Rep. Ritter again answered “[T]hat’s correct.”  Rep. Taylor’s parting words were “Okay. That’s extremely important. I’m glad that you stated that.” Since SWIFT is in fact not a revolving loan fund of the type that assures principal comes back, the coalition wonders if Chairman Ritter is happy with his answers to those questions.

1 view

Recent Posts

See All


bottom of page